Indian Merchants Are Totally Underestimating The Walmart Threat

Mr Luthra, the shopkeeper in my local market who sells me ancient
imported cheese, packets of sliced salami and a variety of other
once-scarce western delicacies that he produces like some kind of
illicit contraband from a fridge buried in the back of his store,
has views on many subjects.

Oddly, the new measure brought in by the Indian government last
week to allow foreign supermarket chains to sell directly to
customers rather than retailers such as him is not among them.
Though he is one of the millions of small businessmen who critics
of the new measure say are likely to lose their livelihoods, Mr
Luthra is unconcerned, even when told Walmart has said it hopes
to open a store in India within a year to 18 months.

"I have been here 30 years. I know everybody. They know me. How
can some American compete with that?" he asks.

Fly into Delhi and you'll arrive at the international airport's
new terminal building, opened in 2010. It is a vast sprawl
of glass, steel and orange carpets, and it is busy 24/7. It
is a concrete – in every sense of the word – manifestation of
what 20 years of sustained economic growth can produce. Since a
package of reforms designed largely by the then finance minister
Manmohan Singh was implemented in the early 90s, India – or
rather, some Indians – have enjoyed the effects of an economy
expanding by up to 9% each year. The amount that has
trickled down to the most needy may have been derisory, but
that huge sums of cash have been created is undeniable. A recent
report from the Indian National Council of Applied Economic
Research quoted in the local Hindustan Times said that the famous
"Indian middle class" grew from 2.7% of the
population in 1995-96 to nearly 13% today.

Leave the airport and within a few minutes you will have
really entered India. The roads are chaotic, clogged and
pitted, a new tunnel ends beside a shanty town and the new
Metro link
to the airport is broken. All the gaps in India's growth
story – so often ignored in the west and elsewhere – are
glaringly obvious. The most recent batch of Indian reforms,
introduced by the very same Manmohan Singh, now prime minister,
is inspired by the fear that these holes will swallow all the
progress of the past decade if drastic action is not taken
soon.

Whether they are implemented could determine if India's growth
picks up again, whether it continues to flatline or whether
it continues to slow, with India set back several decades in
shortish order.

Up in South Block, part of the monumental red sandstone
complex designed by the British to house their administrative
staff in the centre of what they called New Delhi, close aides
explain that Singh's sudden courage stems neither from fears of
further loss of confidence in international markets, nor from
concern over his "legacy", but from victory in an internal
battle within his own party.

The ruling Congress party has long been split between those
favouring economic policies that owe much to the decades of
socialist-style central planning and those looking to boost
private-sector growth and foreign investment and cut back
state spending. But first came a change in finance minister and
then the party president Sonia Gandhi was convinced by Singh that
unless some money was generated soon, the various big dole
schemes she believes are essential to improving the lot of
India's poor (and her party's electoral chances) could not
be funded.

"It's understood now that without money there is no welfare," an
aide to the prime minister says. "There are many more
[reforms] to come."

This is a huge shift, in a country that is home to around a fifth
of the world's population. But the problem is that the most
recent reforms, though impressive in the context, are less so in
the grand economic scheme of things. They may bring in a little
more investment and reassure the markets, but they won't tackle
the real fundamental bottlenecks that are stifling growth –
runaway public expenditure or the soaring inflation that punishes
the poor most. For this, lots of new legislation is needed. Even
the PM's loyal aide, particularly as last week's announcements
cost the government a coalition partner, admits that new laws are
impossible.

The result then is that India, at least until the next election
in 2014 and almost certainly beyond, will not see the deep reform
needed to return to high growth. It will putter on at 6% at best.
A lot by current western standards, but economists here say it is
only just about enough to meet the current needs of the
growing population.

Outside the prime minister's office, the sun is slanting across
the stupendous vista down towards the India Gate. It is the
first evening that is cool enough to convince me that the
brutal summer is once more over. Children play, exhausted
labourers sleep under trees, couples are strolling on the thick,
monsoon rain-watered grass and the sellers of street snacks are
doing brisk business. Like Mr Luthra, no one seems very
worried about the imminent arrival of Walmart.